Interest rates in emerging economies trailing their advanced peers, including the US, is boosting currency volatility and posing challenges to exchange rates and capital flows, according to Bank of Thailand Governor Sethaput Suthiwartnarueput.
“We are entering an uncharted territory,” Sethaput said in a monetary conference in Hong Kong on Tuesday. “We don’t have a good, long historical precedent where interest rates in Asia are significantly lower — and looks like they’re going to stay that way — compared to advanced economies. That presages challenges on the foreign exchange rate and capital flow front.”
The baht, known for being more volatile than its Southeast Asian neighbors, has seen the swings increase to a range of 8%-9% from about 3%-4% before the pandemic, the governor said. While that remains “relatively manageable” given the country’s robust reserves and external payments returning to a surplus, “it’s important not to be too sanguine,” he told a panel on inflation, financial stability and employment.
The higher-for-longer stance adopted by central banks in advanced economies to fight inflation has seen their interest rates surpass that of emerging markets. That carries implications for global financial conditions and possibly impede capital flows to emerging market economies, as funds chase yields.
At the same forum, Sethaput said elevated levels of Thai household debt is “the area that worries us most” as he flagged the declining levels of spending by foreign visitors in the tourism-reliant economy.
While Thai tourism has rebounded and exports have started to recover, enabling the baht to become among the best performers in the region this month, foreign guests are shelling out about 75% less now and staying for shorter periods, he said.
Full credit: http://financialpost.com/pmn/business-pmn/thailand-flags-rising-baht-volatility-elevated-household-debt
